The Business: In a futuristic business nirvana, owners of "virtual" corporations would be able to rent or outsource absolutely everything. Want to get in on the trend? Consider this four-year-old company, with locations in three major California cities and a fast-growing market niche--renting computer and audiovisual equipment to hotels and other businesses that host conferences, trade shows, and the like. Unlike many of its small regional competitors, this company has internally funded its own growth activities, thanks to its strong cash flow and quick turnover of older equipment. Now with no debt and a proven business model, it's embarked on an out-of-state expansion that should push sales into rent-a-hog heaven. The current owner wants to concentrate on another business investment; he plans to offer incentives to his 23 staffers to stay on after a sale.

Price: $6 million

Outlook: With about $23 billion in annual sales, the equipment-rental-and-leasing business is thriving; it's also ripe for consolidation, since most of the industry consists of 32,000 or so small local players. Having already proved it can outperform the industry norm (which is annual sales of about $800,000), this company could boost growth in two key ways: through more regional expansion or major product-line additions. Before you rent an armored car to cart away all the profits, though, keep one caveat in mind: both methods will be capital intensive, especially if you finance, rather than self-fund, that growth.

Price Rationale: If you're looking for an easy answer, forget it. Pricing an equipment-rental business is heavily subjective and depends on such variables as the age or obsolescence of the equipment, the strength of customer and supplier relations, and the extent to which the business is already leveraged. On the upside, this company looks good in all those areas; besides the absence of debt, its million dollars' worth of equipment is relatively new (and its aggressive used-equipment sales force aims to keep it that way). Strong relationships with three vendors and a large customer base are other pluses. Now for the downside: few companies ever sell for a price approaching one times gross revenues, suggesting that--short of a consolidation war--this business is priced at least $1 million too high. Our suggestion: keep your eye on recast earnings and make certain the current level of $1.5 million will cover a manager's salary, an equipment-investment budget, and any financing costs you plan to incur in making this purchase.

Pros: Rent-a-roll-up has a certain ring to it. Could this be the consolidation play of your dreams?

Cons: If you don't plan to merge or build your way into a powerhouse position, somebody else will. Do you really want to run just another rental business? --Jill Andresky Fraser

FINANCIALS

Gross Revenues

Recast Earnings*

1995

$2,999,971

$313,827

1996

$4,509,611

$1,022,891

1997

$5,622,074

$1,497,988

*Before interest, taxes, depreciation, and owner's compensation.

Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Kris Karlson of Bowman/Hanson at 415-292-5227.